May 2024 monthly compliance update
Access Legal’s latest roundup includes information about the anti-money laundering regime and monitoring fair rates of interest.
We start this month’s update looking at a number of issues related to anti-money laundering (AML), including a review of the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 being carried out by HM Treasury. The review is looking at whether changes should be made to improve proportionality and additional clarity, and comes as the Treasury is considering radical changes to the anti-money laundering supervisory regime, which could a see a single AML supervisor for legal services, with the Solicitors Regulation Authority (SRA) putting itself forward for this role.
New AML inspections
The SRA started a new round of AML inspections in May and has updated its guidance on what to expect on an inspection. There are two key changes, (i) it will be looking more closely at AML controls, and (ii) it may not always interview fee earners.
Previous inspections have resulted in a number of firms being sanctioned over £120,000 for various procedural breaches, including having no, or non-compliant, firm-wide risk assessments, no client and file risk assessments, no client due diligence, no policies, controls and procedures in place since they were required (2017), and no AML training provided to staff. It will be interesting to see if any firms get caught out this time!
Estate agents sanctioned for AML breaches
More than 250 estate agencies have been fined a total of over £1.6m for breaching anti-money laundering requirements, with fines ranging from £1,500 to over £50,000. Law firms could rely on estate agents to carry out client due diligence on clients referred to them, but based on these latest sanctions many firms may choose not to go down this road, especially as the law firm would remain liable for any errors or omissions made by the estate agent relied upon.
New sanctions guidance
The Office of Financial Sanctions Implementation has introduced some new Frequently Asked Questions, which are designed to offer easily accessible responses to commonplace compliance questions. These should be read to ensure firms are, and remain, compliant.
By way of reminder, firms should not rely on third-party assurances for sanctions due diligence, as to do so could lead to sanctions being levied on them should the third party have carried out the checks incorrectly.
CQS clarification
Back in October 2023, the Law Society published new requirements around who could be a senior responsible officer (SRO) for the purposes of the Conveyancing Quality Scheme (CQS), which led to a number of queries being raised by SROs who were not solicitors (FCILEx and CLC) but held these roles. The Law Society published some holding advice at the time, but has now confirmed that SROs can in fact be FCILEx and members of the Council for Licensed Conveyancers as long as they meet the other requirements of the role.
Padding out time records
A recent poll found that more than a third of lawyers have admitted to padding time sheets, with 13 per cent saying that they do so “regularly”. The poll for RollonFriday, an industry website, received nearly 900 responses, with 35.5% of people admitting that they were guilty of “time dumping”, or adding time to clients’ bills that in reality had not been incurred. Moreover, 13% per cent were regular offenders, 12.6% were “occasionally” guilty and nearly 10% considered themselves “rarely” culpable.
These results follow on from a solicitor who was struck off last month for adding time for work he had not carried out, but who said he was going to do it in the future. Clearly, manipulating time records to obtain some form of gain is unacceptable. It has been said by some that clients do not suffer as such padding is caught by the firm before bills are sent out, but this should still be addressed by firms as it shows fee earners to be lacking integrity and honesty.
Fair rates of interest
We reported last month that there had been a 1000% increase in the amount of interest earned by firms on client monies held in their client accounts, and since then the SRA has said, “we have heard of cases of firms doing quite well out of the monies they hold if this involves large amounts and are held for a more significant period. Similarly, we have also been told that some firms are not accounting to their clients for anything like the same rate of interest, and certainly not what could reasonably be classed as ‘fair’”.
Firms should review not only whether the rates of interest being paid are fair, but also whether their financial positions could become untenable should this interest reduce or disappear altogether.
Post Office scandal update
This month has seen a number of current and ex-Post Office lawyers appearing before the Public Inquiry looking into the scandal. A number of areas of serious misconduct were exposed, including:
- Drafting critical documents in such a way that they attracted legal profession privilege and reduced the risk of having to be disclosed
- Giving advice not to keep a paper trail in relation to reporting issues to insurers
- Using inappropriate wording in communications (‘whim’, “they can leave if they don’t like Horizon”, “this is puerile”, inappropriate email jokes, “I smell a rat”, “axe to grind”)
- A commercial lawyer dabbled in criminal work
- Lack of supervision of the only criminal lawyer in POL, who only had previous property experience
- Lack of competence of external lawyers in dealing with prosecutions
- The size of the Post Office account led to a lack of independence in advice
- Advised in writing that key evidence should not be disclosed to the defence.
